Baldwyn-based craft and fabrics retailer Hancock Fabrics today said it was withdrawing its proposal to take the company private.
The company said in April it would have a 1000-to-1 reverse stock split and no longer be publicly traded, in order to better use its finances and focus on improving its performance. Hancock would have paid shareholders with less than 1,000 shares $1.20 per share before the reverse split.
But the company said some shareholders were splitting up their shares or buying shares through multiple accounts in order to get the payout. Essentially, they were “gaming” the system to take advantage of the move.
The company said savings during the first year of going private that it would have achieved would have been eaten up by the payouts; therefore the company’s board withdrew the proposal.
The company said it may explore going private in the future, however.
Here’s the company’s news release:
Hancock Fabrics Inc. (OTC symbol: HKR) announced that the Board of Directors has decided to withdraw Proposal 1, which relates to the proposed reverse stock split and subsequent deregistration under the Securities Exchange Act of 1934, from consideration at the upcoming annual meeting. Under the proposed one thousand for one reverse stock split of the Company’s outstanding shares of common stock, fractional shares, which includes, but is not limited to, all stockholders of the Company owning fewer than 1,000 pre-Reverse Stock Split shares, resulting from the Reverse Stock Split would have been cashed out based on a per share amount of $1.20 per pre-Reverse Stock Split share in lieu of issuing fractional shares. As a result of the decision, Proposal one will not be on the Agenda and not considered or voted upon at the Annual Meeting. All other proposals presented in the Proxy Statement remain on the agenda for the Annual Meeting.
While the Board of Directors believes the transaction was in the best interest of the Company and its stockholders at the time of its proposal, upon review and careful consideration, further discussions with management and its advisors and other relevant factors, the Board of Directors has determined that the costs of the proposed transaction now outweigh the benefits to the Company and its stockholders.
The primary cause is the increased number of shares that are now held through accounts with fewer than 1,000 shares, mostly from certain holders who are acquiring shares through multiple accounts with less than 1,000 shares or splitting their existing holdings, simply in an attempt to receive multiple fractional share payments. This activity resulted in a significant increase in the expected cost of the proposed transaction, eliminating virtually a full year of the potential expected savings that the Company anticipated would have resulted from going private.
Therefore, the Board of Directors has decided that it is in the best interest of the Company and its stockholders to withdraw the proposal from stockholder consideration for the upcoming Annual Meeting. The Board will continue to monitor the cost of a reverse stock split or alternative transaction versus the benefits and may at some point in the future and on such terms as will be decided to be beneficial at that time pursue another transaction if and when deemed to be in the best interest of the Company and its stockholders.
Steve Morgan, President and Chief Executive Officer commented, “At this time, the Board feels that the expense of the transaction, due to the abuse of the multiple account purchases, which the Company mentioned in the 8K filed on July 15, 2014, has grown to a point that it now exceeds the benefits it would generate for our remaining stockholders. We look at this transaction just like any other business investment decision we would make and have decided not to proceed based on the economics at this time. This does not mean we wouldn’t propose another similar or alternative transaction in the future when and if it becomes economically prudent and in the best interest of the Company and its stockholders.”